The Microfinance

Abdul Sattar17261Syed Ghalib17330

Thursday-December 12, 2012 i.e.(20-12-2012)

Dr. Yunus once said in an interview,“All human beings are born entrepreneurs Some get the opportunity to find this out, but some never get this opportunity. A small loan can be a ticket to exploration of personal ability. All human beings have a skill- the survival skill. The fact that they are alive proves this. Just support this kill and see how they will choose to use it.”

Methodologies

Individual Lending Peer Lending

Solidarity Group Community Based Organizations Grameen

Latin Village BankingAmerican

Four Microcredit Methodologies

Four Microcredit Methodologies Individual Lending, is defined as the provision

of credit to individuals who are not members of a group that is jointly responsible for loan repayment.

Frequent and close contact (Character based lending)

Credit tailored to specific need of business

Successful for larger urban-based business

Collateral/Guarantee (Assets pledged) required

Interest rate higher Detailed financial analysis

Four Microcredit Methodologies

Grameen Solidarity Group Lending, peer group of five ,self formed unrelated members, each borrower receives an individual loan, through the mechanism of the group.

No collateral is required

Group members guarantee each other’s loanGroup save prior to receive loanGroup fund is managed by groupNo further loans are available if loans are not repaid on time

Four Microcredit Methodologies

Latin American Solidarity Group Lending, peer group of five ,self formed unrelated members, each borrower receives an individual loan of equal amount, group leader receives loans of group then distributes to members..Minimum economic analysisGroup members guarantee each other’s loanInterest rates are high and charge feesEstablish emergency fund. 

Village Banking (CBO ), are community managed credit and savings associations in rural areas, ranges 30-50 self-selected members.Group members have democratic controlConsist of management committee and membershipAll member offer collective guarantee to lending MFILoans from internal account (saving, interest earning) set their own terms.

Four Microcredit Methodologies

Loan ParametersGrameen Bank Individual LendingVillage Banking Latin American Repayment Period:

Usually 12 monthsNo flexibility within group, as each client in group must repay loan over same period

Can be tailored to the individual client needs, from 1 to 24 months

Loans to Bank from lending institution made in cycles, with cycles range from 3 to 12 months each

Very short term, generally not exceeding 6 months.

Repayment Frequency:

Weekly Usually monthly Loans made from internal funds can be repaid weekly or monthly

Weekly, bi-weekly or monthly

Loan Amount: Limited to fairly small loans because clients need to guarantee each other’s loans – initial loan amounts generally from $50 to $100No flexibility in amount, as each client in group receives same loan amount

Can be tailored to the individual client needs, usually from $100 to $3,000

Amount of loan to Village Bank from lending institution based on the aggregate ’savings, with individual loans usually starts at $50 or $100 and growing up to $300

Fairly small loans; clients guarantee for eachother’s loans – Initial amounts generally from $100 to $150. Small Increase in loan amounts often follows a strict series of loan cycles

Interest Rate: Often quite low – equal to or slightly higher than commercial rates

Usually higher than commercial rates. Interest may be vary with purpose of loan

Loan from lending institution to Bank made at commercial rates.

Usually significantly higher than commercial rates

Four Microcredit Methodologies

The Client: Value, reliable service, reasonable Price

The Product: Responsive to Client’s needs

The Delivery Methodology: Mitigates Risk, Reduces Transactional Costs

The Microfinance Provider: Manage Risk and Achieve Financial Sustainability

Some Key Principles to analyze Microcredit Methodology

Undertake regular market researchOffer pro-poor dynamic productsMonitor operations systematicallyEstablishing and maintaining operational

standardsEnsuring verified and regular information

on key indicators

Generating social capital via solidarity lending, good client lender interaction.

Coupling microfinance with social transformation strategies

Steps for the Improvements in Methodology(s)

11

Niche Market

Microfinance (Credit, Deposit, Insurance

and Remittances)

Non-Poor

Transitory Vulnerable

Transitory Poor

Transitory Non-Poor

Chronic Poor

Extremely Poor Safety Net Programs

Micro Credit

Foot print is spread across Pakistan

Access Strand

The Formally Served The Informally Served The Financially Excluded

The Financial Market Development Frontier

Pakistan amongst 36 countries that has a National Strategy for

Microfinance…….Focus on Growth

3M active borrowers by 2010 and

10M by 2015

Growth Driverso Institutional Robustness and

Sustainabilityo Availability of funds from

diversified sourceso Investment in Human resources

Different institutional Models

Industry Players and their

market share

Clients

1.8 M

MFB38%

MFI 26%

NGO

5%

RSP31%

Infrastructure

• 8 Microfinance Banks (MFBs)

• 4 Rural Support Programs (RSPs)

• 5 Specialized Microfinance Institutions (MFIs)

• 31 NGOs• Staff: 10,700*• Outlets: 1,480*

*Source: MicroWATCH (Jan-Mar 2009). Pakistan Microfinance Network, Islamabad. June 2009

Micro Credit Clients

Outreach Rural and Urban

2008-Q4 2009-Q1 2009-Q2 2009-Q30

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

42% 43% 44% 44%

58% 57% 56% 56%

Active Borrowers by Urban/Rural

RuralUrban

Quarter

No.

Acti

ve B

orr

oow

ers

The Way Forward - agriculture financePromoting Livelihoods and Ensuring food

security! 67% of Pakistan’s population lives in rural areas 76% of rural manpower is engaged in

agriculture/livestock 21% is the share of agriculture and livestock in

GDP Food shortage MF helps poor farmers to rent small pieces

of land (1 to 2 Acres) and buy timely quality inputs

Cash flows Outreach capability and a tested rural finance

product Agri MF is market driven

Based on commercial rates Is financially sustainable

Agriculture finance

Livestock financing

Rural enterprise financing

Diversified services(credit, deposit, insurance and remittance

)

Rural Financ

e

About Rural Microfinance

Industrial Trends in Pakistan Microfinance Operations (From June 2008 to June 2009)

Savings

1. Consistent Growth

2. Moved from 2nd to 1st biggest product.

Insurance

3. Emerged as fastest growing product.

4. Moved from 3rd biggest product to second

5. Affected due to Linking with Micro credit.

6. Moved from Individual to Client plus mode

Credit

7. Lost its position amongst products from number 1 to number 3rd

8. Two Major Players suffered . One face Liquidity constraints, other faced portfolio quality challenges

Jun-

08

Sep-

08

Dec-0

8

Mar-0

9

Jun-

090

1000000

2000000

Micro In-surance

Jun-

08

Sep-

08

Dec-0

8

Mar-0

9

Jun-

091650000

1750000

1850000

Micro Credit

Jun-

08

Sep-

08

Dec-0

8

Mar-0

9

Jun-

090

1000000

2000000

Micro Saving

Jun-

08

Oct-0

8

Feb-

09

Jun-

090

500000

1000000

1500000

2000000

2500000

Micro CreditMicro SavingMicro In-surance

Top Four Players with Product Clients

Jun-

08

Aug-0

8

Oct-0

8

Dec-0

8

Feb-

09

Apr-0

9

Jun-

090

200000

400000

600000

800000

1000000

1200000

NRSP

PRSP

TRDP

FMFBL

TMFB

Jun-

08

Sep-

08

Dec-0

8

Mar-0

9

Jun-

090

100000

200000

300000

400000

500000

600000

700000

NRSP

KB

Kashf

FMFBL

Jun-

08

Aug-0

8

Oct-0

8

Dec-0

8

Feb-

09

Apr-0

9

Jun-

090

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

NRSP

Kashf

KB

FMFBL

TRDP

Micro Saving Micro InsuranceMicro Credit

Constraints/Potential and the way forward

89% of Pakistanis are unbanked Expansion of micro credit restricted

due to financing constraints Micro deposits a good source but

only Banks are allowed to raise deposits

Need for specialized microfinance provider with a focus on rural areas

Success is not final, failure is not fatal: it is the courage to continue that counts. Winston

Churchill

Thank You!